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Market Highlights: Nvidia's Growth Trajectory, Interest Rate Talks, Private Credit Trends

Nvidia continues its remarkable surge, as its shares see the most significant increase in approximately nine months following the chipmaker's impressive sales forecast. This surge propelled all three major American stock indexes to reach new record highs on Thursday, as investors regained confidence that advancements in artificial intelligence will drive profitability. Meanwhile, Nvidia itself experienced an unprecedented 16% surge in its share price, contributing to an unparalleled $277 billion increase in total market capitalization, surpassing Meta Platforms' record one-day surge of $197 billion just three weeks prior.


Nvidia's bullish projections are widening the valuation gap between the tech-heavy Nasdaq 100 and the broader S&P 500 Index even further. What's striking is that this disparity is still shy of the levels seen in the mid-2000s, which only normalized after the crash of 2008 sent both indices tumbling down. The persistent premium on tech stocks during that time was, in part, a residue of the dot-com boom of the 1990s, with tech shares retaining their high valuations despite significant declines from their peak.

While concerns may arise about lingering distortions from the pandemic era, during which many tech companies flourished amidst lockdowns, it's worth noting that the Nasdaq's valuation advantage had been growing since 2019, well before Covid-19 struck. However, the broader S&P 500's current trading level, at 20 times 12-month forward earnings, is cause for greater concern. This level was last reached in the late 1990s and during the pandemic, indicating potential overvaluation.


In comparison, the Nasdaq 100 is still below its pandemic peak and far from the extremes of the dot-com bubble era. Therefore, there might be less worried about stretched valuations for tech stocks, especially amidst an AI boom that presents a compelling case for being a transformative force.

Interest Rates 

Christopher Waller of the Federal Reserve has expressed caution, noting that the significant increase in the Consumer Price Index (CPI) in January should be considered carefully before deciding when to initiate rate cuts. Patrick Harker, President of the Federal Reserve Bank of Philadelphia, also issued a warning against premature easing, emphasizing the need for prudence.


Over at the European Central Bank (ECB), Robert Holzmann mentioned that he does not anticipate rate cuts in the euro area occurring before the United States takes such actions.

Joachim Nagel, President of the Deutsche Bundesbank, urged his colleagues to resist the temptation of lowering rates too soon. Adding to economic concerns, Germany reported more weak data, with GDP contracting by 0.3% in the last quarter. This decline was attributed to an investment slump, putting Germany on track for its first recession since the onset of the pandemic.


In the United Kingdom, consumer confidence dipped in February, according to GfK, indicating that households are still reluctant to increase spending. One potential positive development is the expected 12% reduction in the energy bill price cap in April, reaching the lowest level in two years.

Corporate News 

Reddit has publicly filed for a US IPO, marking what could be the first significant test of the market for a venture capital-backed tech start-up this year. Notably, Sam Altman is among its largest shareholders.


In financial news, Allianz has announced a €1 billion buyback and increased dividends following better-than-expected profits.


Similarly, StanChart has unveiled a fresh $1 billion buyback program after surpassing profit expectations.


Meanwhile, I-Res, Ireland's largest private residential landlord, is open to a complete sale and will reassess its status as a listed Real Estate Investment Trust (REIT).


According to the Financial Times report on Friday, discussions surrounding a proposed $30 billion merger between the chemicals divisions of Abu Dhabi National Oil Company (ADNOC) and Austrian oil and gas firm OMV have hit a standstill in recent weeks. Negotiations were paused as the parties work through a series of disagreements, including the naming of the merged entity, as per sources familiar with the matter. However, the report suggests that talks could potentially resume, with a deal ultimately being reached.


Bouygues Telecom, a subsidiary of French conglomerate Bouygues, announced on Thursday that it had entered into an exclusivity agreement with La Poste Group to acquire La Poste Telecom for €950 million ($1.03 billion).

Private Credit  

A consortium of banks initiated a $5 billion leveraged loan sale on Wednesday to support KKR & Co.'s acquisition of a stake in Cotiviti Inc., as revealed by a source familiar with the matter. The sale comprises a $4.4 billion floating-rate term loan led by JPMorgan Chase & Co. and a $600 million fixed-rate term loan led by Goldman Sachs Group Inc., with KKR Capital Markets participating in both transactions. Pricing discussions for the seven-year floating-rate loan are underway, with terms set at 3.5 percentage points over the Secured Overnight Financing Rate and a discounted price of 99.5 cents on the dollar, as disclosed by the anonymous source. (Source: Bloomberg)


In another development, Goldman Sachs Asset Management has rolled out its inaugural European private credit fund, targeting affluent individuals in the region's growing industry. The direct-lending fund, which has already attracted over €550 million ($594 million) from investors, offers senior debt to mid-sized and large European businesses primarily in non-cyclical sectors


The rapid growth of private credit has helped rein in delinquencies and fostered stronger acceptance among bondholders for debt extensions over restructurings, according to investment firm Muzinich & Co.


Private credit has gained traction in recent years as investors sought higher returns amidst persistently low interest rates. Typically offering floating interest rates higher than traditional bank debt, private credit loans have become increasingly popular.

The market ballooned to $1.7 trillion as of June 2023, from around $500 billion at the end of 2015 (Source: Preqin). In comparison, annual issuance of dollar-denominated non-financial corporate bonds in the past two years shrunk to about half of the $1.7 trillion peak in 2020.


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